The federal government has extended by two weeks its review of a $5.2-billion bid by Malaysian state oil company Petronas to take over Progress Energy Resources Corp. as the country’s focus on foreign moves to buy Canadian resource companies intensifies.
The unexpected delay comes as Ottawa also vets a $15.1-billion (U.S.) offer for Nexen Inc. by CNOOC Ltd., the Chinese state-controlled company, a deal that has been slammed both by Canada’s main opposition party and from some within Conservative Prime Minister Stephen Harper’s own government.
Most analysts have said they expect Petronas’s takeover of Progress to face little trouble as the government assesses if the transaction passes its main test of being of net benefit to Canada.
Progress is a natural gas producer, as opposed to a developer in the strategic Alberta oil sands, and plans set by Petronas/Progress to build a multibillion-dollar liquefied natural gas plant on the Pacific Coast fit with a push by Mr. Harper to export the fuel to Asia.
Legal sources familiar with studies done by the government’s Investment Canada agency said the extension to Oct. 19 could be routine, tied to a busy schedule within the review division. But one lawyer said it was clear that the Malaysian investment is not as politically tricky as a deal involving China.
“Let’s face it, Malaysia is nothing in terms of geopolitics whereas China is an emerging superpower and is increasingly assertive,” the lawyer said. “Malaysia will do the Progress deal and perhaps no others, whereas China could buy all of the oil sands if we let them.”
Both Progress shareholders and Canadian antitrust authorities have already approved the bid, which Petronas raised when a competing offer surfaced last summer.
Industry Minister Christian Paradis appeared to suggest that investors should not read too much into his pushing the decision deadline out, but offered no reason for the delay.
“Extensions to the review period are not unusual. I will take the time necessary to conduct a thorough and careful review of any proposed investment under the [Investment Canada] Act,” he said in a statement.
Progress officials declined to comment.
Mr. Paradis is in charge of the “net benefit” reviews under the act. Evaluations last for 45 days and can be extended by another 30. Further extensions beyond that must be negotiated.
There is little guidance on precisely what the net benefit rule entails. The Conservative government, which shocked the market when it rejected a $39-billion foreign bid for fertilizer giant Potash Corp. in 2010, has promised to clarify things when it gives its decision on the Nexen deal.
A major issue is whether a state-owned enterprise acts as an arm of its government rather than a corporate entity.
Mr. Paradis has until Oct. 12 to rule on CNOOC’s bid, although he is widely expected to extend the review period for the 30-day add-on, and perhaps further.
Mr. Harper said on Thursday that CNOOC’s bid for Nexen raised some difficult policy questions. But the government gave no sign it would bow to a demand from the opposition New Democratic Party to veto the deal.
Mr. Harper is trying to balance concerns over the CNOOC bid with what the government says is a huge need for foreign investment in the energy sector. Ottawa says the sector needs $630-billion (Canadian) over the next decade alone, and that much of it will have to come from overseas.
If the Nexen deal goes through, Chinese companies will have snapped up more than $25-billion of Canadian energy assets in 10 years.
Progress shares rose 6 cents at $21.85 on the Toronto Stock Exchange, just below the $22 Petronas bid price. By contrast, Nexen’s shares closed at $25.48 (U.S.) in New York on Friday, well below the $27.50 bid, showing investor fears that Ottawa could block the deal.